Public Comment, Greenlining Institute, Subprime Mortgage Lending
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Public Comment, Greenlining Institute, Subprime Mortgage Lending

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1Greenlining Comments on Subprime Mortgage Lending (Too Little, and Perhaps Too Late) [Docket No. 2007-3005] Dear Chairman Bernanke, Comptroller Dugan, Chairman Bair, and Director Reich: The Greenlining Institute is submitting these preliminary comments as quickly as possible in order to enable the regulators to determine whether additional studies should be undertaken, particularly as to the impact of the proposed statement on minority homeownership and low/moderate income homeownership. The proposed guidelines on subpime are well meaning. Greenlining, however, is concerned that the guidelines have been developed without benefit of any underlining studies as to their impact on a) minority homeownership, b) homeownership rates generally, c) the 70% of Americans who live from paycheck to paycheck, and/or d) the legitimate desire of some potential home buyers to place an optimistic bet on their future and the future of our economy (See for example Wall Street Journal, 03-12-07, “Credit Crack-up”) As the regulators are well aware, Greenlining raised concerns about exotic ARMS in March 2004, and helped convene in March 2004, with the Federal Reserve, the OCC, FDIC, and OTS, 15 financial institutions to discuss what Greenlining believed to be a pending crisis. Unfortunately, these guidelines appear to have been written without sufficient input from homeowners who strive to legitimately share the American Dream with those who can afford prime ...

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Greenlining Comments on Subprime Mortgage Lending
(Too Little, and Perhaps Too Late)
[Docket No. 2007-3005]
Dear Chairman Bernanke, Comptroller Dugan, Chairman Bair, and Director Reich:
The Greenlining Institute is submitting these preliminary comments as quickly as possible in
order to enable the regulators to determine whether additional studies should be undertaken,
particularly as to the impact of the proposed statement on minority homeownership and
low/moderate income homeownership.
The proposed guidelines on subpime are well meaning. Greenlining, however, is concerned that
the guidelines have been developed without benefit of any underlining studies as to their impact
on a) minority homeownership, b) homeownership rates generally, c) the 70% of Americans
who live from paycheck to paycheck, and/or d) the legitimate desire of some potential home
buyers to place an optimistic bet on their future and the future of our economy (See for example
Wall Street Journal, 03-12-07, “Credit Crack-up”)
As the regulators are well aware, Greenlining raised concerns about exotic ARMS in March
2004, and helped convene in March 2004, with the Federal Reserve, the OCC, FDIC, and OTS,
15 financial institutions to discuss what Greenlining believed to be a pending crisis.
Unfortunately, these guidelines appear to have been written without sufficient input from
homeowners who strive to legitimately share the American Dream with those who can afford
prime fixed rates.
Besides Greenlining’s primary concern that these guidelines were developed without studies on
the implications as to minority and low-income home ownership, Greenlining raises the
following preliminary concerns:
1.
Half of Subprime Eligible for Prime:
Half or more of those receiving subprime loans are eligible or could be readily made eligible
for prime rates. Alternative credit scoring, for example, using rental payments and utility
bills, could have easily enabled many facing foreclosure from subprime loans to have
received a fixed rate prime loan that they could afford. Yet these guidelines fail to address
the responsibility of financial institutions to ensure such upgrading, much less indicate
regulatory concern, or suggest possible regulatory penalties.
2.
Unintentional Enlargement of Subprime Market
These guidelines could have the unintended consequence of forcing an increasing number of
low and moderate income owners into the unregulated subprime market. Perhaps it would be
better for the regulators to consider supporting and encouraging Congressional legislation
that would regulate all home loans and those who participate in originating or developing
the secondary markets for such loans. That is, legislation should be considered to cover
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federally unregulated mortgage brokers, (who are generally the largest abusers in the
subprime market) and the Wall Street investment bankers, such as Morgan Stanley and
Lehman Brothers, that are responsible for most of the financing of the subprime market and,
in fact, have shares in many subprime companies. Consideration should also be given to
covering the insurance industry and hedge funds that adversely influence the housing
market. (See for example, recent articles estimating that Wall Street investment bankers are
responsible for 60% of recent subprime loans, Wall Street Journal 03/12/2007 and New
York Times 03/13/2007 on New Century Financial and New York Times, 03/11/2007,
“Crisis Loans in Mortgages”)
Proposed Interim Actions
The Greenlining Institute, on behalf of its members, who include major African American
churches, major Latino and Asian American immigrant groups, and small minority business
associations (whose members finance their businesses with the equity of their homes),
recommend the following interim actions:
1. The regulators individually or collectively complete studies within sixty days on the
impact of the guidelines on homeownership rates, particularly as to the poor, minorities, and
the 70% of Americans who live from paycheck to paycheck.
2.
The regulators revise the guidelines to discuss the importance of insuring that all borrowers
eligible for prime rates should be receiving prime rates, including those who would be
eligible if alternative scoring, (such as using utility and rental payments) were available.
3.
The regulators, along with the Secretary of the Treasury, secure Administration support for
immediate congressional action that would, under the interstate commerce clause, enable the
regulators (and/or a separately created federal agency) to ensure that all institutions involved
in home origination and home equity loans are covered by these and future guidelines. This
should include the Wall Street investment bankers, who have financed and substantially
increased the tentacles of the subprime industry, as well as the 50,000 mortgage brokers who
generally are far more unscrupulous then federally regulated institutions.
4.
The regulators also consider supporting pending legislation to modernize CRA to include
Wall Street investment bankers and the insurance industry. (CRA Modernization Act of
2007, introduced by Congresspersons Eddie Bernice Johnson and Luis Gutierrez.)
Attached is a copy of Greenlining’s proposed Op-Ed in the American Banker, scheduled to be
published in March, on the above subject matter.
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Respectfully submitted,
/s/ Bob Gnaizda
Robert Gnaizda
General Counsel and Policy Director
The Greenlining Institute
cc: Barry Wides, Scott Polakoff
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The Housing Crisis:
Too Little, Too Late
By: Robert Gnaizda, General Counsel, The Greenlining Institute, and
Len Canty, Chair and CEO of The Black Economic Council
More than three years ago, the federal regulators were warned by community groups, including
The Greenlining Institute, about the perils of exotic adjustable rate mortgages and the need to
focus, at least in part, on Wall Street investment bankers and other unregulated sources of
subprime credit.
Today, the regulators have awakened to part of the problem. Unfortunately some of the regulators,
as well as Freddie Mac, are veering toward a course of possibly arbitrary and artificial tightening of
credit that may be counterproductive. That is, it may dry up credit to minorities, the poor, and the
seventy percent of Americans who live from paycheck to paycheck. One leading advocate for the
poor, David Glover, the Executive Director of the Oakland Citizens Committee for Urban Renewal
(OCCUR), recently said, “The irony of this is that people who already own expensive homes are
influencing the decisions that adversely effect renters and the poor who also want a part of the
American dream.”
Except for the Comptroller of the Currency, John Dugan, it appears none of the regulators have yet
thought about, much less carefully studied, the adverse impact their policies might have on their
efforts to close the minority homeownership gap. Nor have some regulators studied whether the
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tightening of credit could reduce our national homeownership rate from 69% to the 64% level of just
a decade ago. Today, in our largest state, California, only 1 in 20 minorities who do not own a
home can afford to buy one.
Role of Wall Street
Of equal concern to housing advocates, particularly those concerned about the unacceptably low
homeownership rates among African Americans, Latinos, and Southeast Asians, is the regulators
apparent unwillingness to influence the conduct of giant Wall Street investment bankers such as
Goldman Sachs, Morgan Stanley, Bear Stearns, Lehman Brothers, and Merrill Lynch. Over the last
few years almost two-thirds of mortgages have been packaged into securities and sold to investors
worldwide by these bankers. To date, none of these giant investment bankers have offered, despite
their $50 million CEO salaries, to share the pain with the poor.
Another issue many advocates for the poor are concerned about is what impact the tightening of
credit for the regulated and generally responsible financial institutions will have on the irresponsible
unregulated market. Without national legislation and federal regulation it is quite possible that an
increasing number of minorities and the poor will be forced into exotic subprime loans from the
unregulated including a wide range of subprime mortgage lenders who are in it for quick profits,
such as Ameriquest and New Century Financial.
Of equal concern is the federal regulators lack of solutions that address the pending foreclosure
crisis which could, according to the Center for Responsible Lending, affect 1 in 5 subprime
borrowers, a disproportionate percentage of whom are minorities and/or poor.
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Multi-Billion Dollar Anti-Foreclosure Fund
If the regulators want uniform support for the tightening of credit, they should first offer a two prong
solution. The first part of the solution is to create a multi-billion dollar national, Anti-foreclosure
Fund, funded in part by the giant Wall Street investment bankers who have profited so heavily from
the mortgage instruments the regulators now wish to restrict or eliminate. At a minimum this fund
should be available to all low and moderate income families who face foreclosure, whether from a
regulated or unregulated institution, or whether from the originator or the foreign security holder, so
long as the cause of the foreclosure is not primarily due to the borrower’s own fraud. Some of us
believe that financial literacy alone or a 311 hotline is not the full answer, although both could
benefit thousands of those facing foreclosure.
Hopefully the Chairman of the Federal Reserve, the Chairman of the FDIC, the Comptroller of the
Currency, and the Director of the OTC, will soon issue a clear call for all those who have benefited
from loose credit mortgage standards, including Wall Street investment bankers, to come to the
table and develop this fund. Nine years ago Federal Reserve Alan Greenspan did just that to save
a hedge fund, Long Term Capital Management, from its own fraud and greed.
The second half of the solution is to contemplate the “unthinkable”: regulate the investment banks,
the insurance companies, the mortgage brokers, and the Ameriquests of the world. This would help
set a universal standard of conduct. In the absence of this universal standard, even the most
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responsible financial institutions will be forced to get out of the subprime business, as did B of A a
few years ago, or compete at the lowest common denominator level.
Perhaps, it is time for our new Congress to follow a suggestion first made by former US Comptroller
of the Currency, Eugene Ludwig in 1993: expand CRA to cover a broad range of financial
institutions including investment bankers and insurance companies.
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